PROVIDENCE – The merger and acquisition market for middle-market companies remains strong at the start of 2018, according to Citizens Commercial Banking’s Middle Market M&A Outlook 2018 report issued Tuesday.
The report, which surveyed more than 400 C-suite executives at companies with a revenue between $25 million and $3 billion per year, found that there is “widespread and growing optimism regarding the health of the economy, an abundance of acquisition currency in the form of idle cash and lofty stock valuations.”
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Approximately 39 percent of sellers were bullish on M&A valuations heading into 2018, as compared with 32 percent a year prior. Meanwhile, 44 percent of sellers thought that valuations would remain stable for the year.
Of those identified as M&A buyers, 41 percent expect to pay more for acquisitions that fit their target criteria, a significant jump from the 26 percent one year ago. For 2018, 47 percent of buyers thought M&A valuations would remain stable for the year.
The report summary noted that there was a reported “dearth of attractive, and more importantly, available, acquisition targets,” creating a sellers’ market.
The report noted that in 2017, both buyers and sellers expected a more favorable buyers’ M&A market, with 53 percent of buyers and 52 percent of sellers responding as such. Heading into 2018, only 45 percent of buyers thought the year would be a buyers’ market, while 35 percent thought it would be a sellers’ market. Of those who identified themselves as sellers, 42 percent of respondents thought 2018 would be a buyers’ market, while 33 percent thought it would be a sellers’ market. Sellers uncertain of whether 2018 would be a buyers’ or sellers’ market increased from 14 percent last year to 24 percent in the 2018 report.
For buyers, 76 percent reported that they were either presently involved in, or were open to considering a sale or merger in the next 12 months. The top reasons that buyers rported for pursuing acquisition was to increase revenue (60 percent).
Of sellers, 68 percent claimed to be prepared for a sale, while 35 percent are confident their company will be acquired. The top reason for selling was to provide liquidity to owners, at 39 percent, followed by an effort to take advantage of overall market valuations at 37 percent.
The top concern of sellers was losing key employees during or after the sale, followed by being underpaid or undervalued by an acquiring firm. Similarly, the top concern for buyers is overpaying or over valuing a target firm.
Sellers said that on average, buyers solicit M&A activity 4.9 times per month, with 95 percent reporting that they had been solicited. Of those respondents, 44 percent said that solicitation makes M&A considering more likely, while 46 said it had little no effect on consideration.
The study also showed a growing confidence in the overall health of the economy by midmarket firms. Respondents in the survey were less worried about the likelihood of a financial crisis heading into 2018, than in 2017, with 65 percent of respondents saying it was unlikely, while 35 percent said a financial crisis was likely. In early 2017, 54 percent of respondents said a financial crisis in the next three years was unlikely, while 46 percent said it was likely.
Chris Bergenheim is the PBN web editor.
